Morgan Stanley (MS) beat third-quarter profit estimates on Wednesday, October 14, and the stock still slipped. The bank earned $3.03 a share against LSEG’s $2.91 estimate, on net income of $4.91 billion and revenue of $20.34 billion, up 12% from a year ago.
Shares fell about 2% in premarket trading on Wednesday, after closing Tuesday at $186.64. Before the release, the stock was up about 5% for the year. The question is how much of this quarter’s trading strength can last.
Morgan Stanley’s Beat Came From the Trading Floor
Equities did most of the work. Revenue in that business jumped 41% to $5.8 billion, about $909 million above the StreetAccount estimate. Reuters tied the surge to heavier trading as investors repositioned around the Federal Reserve’s rate decision and the US-Iran war. Goldman Sachs (GS) reported a similar jump in equities trading a day earlier.
The rest of the investment bank was softer:
- Fixed income revenue fell 7% to $2.01 billion.
- Investment banking rose just 2% to $2.16 billion, about $110 million short of estimates (more completed mergers, fewer IPOs).
- Total revenue came in below the record $21.35 billion Morgan Stanley posted in the second quarter.
Wells Fargo analyst Mike Mayo called the quarter “good, but not great” in a note on Wednesday.
Wealth Management Is the Floor
The segment split shows why a trading pullback would hurt Morgan Stanley less than it once did.
Wealth Management revenue climbed from $6.40 billion in the third quarter of 2023 to $8.86 billion in the second quarter of 2026, with only two small quarterly dips along the way. This quarter set another record: $9.1 billion, with a 30.4% pretax margin and $232 billion of net new assets. That’s about 42% more revenue than three years ago, and about 45% of the firm’s total this quarter.
Institutional Securities is the swing. Its revenue has ranged from $4.94 billion at the end of 2023 to $11.04 billion in the second quarter of 2026, then fell to $10.0 billion this quarter, down about 9% in three months. One segment compounds; the other follows the market.
Morgan Stanley Stock Already Lost Its Premium
The obvious objection: if trading cools, earnings fall, and the stock falls with them. Some of that is already in the price.
Morgan Stanley stock trades at 14.6x forward earnings, close to its five-year average of 14.1x and well below the 19.1x peak it hit in July. That reset came before Wednesday’s results, as bank stocks fell sharply in the third quarter on a surge in Treasury yields.
What Morgan Stanley Stock Is Worth if Trading Cools
The risk I modeled is that trading gives back some of its gains. I have revenue up 16% this year (three quarters are already booked), then down 2% in 2027 as equities trading normalizes, recovering to 4% to 5% a year after that. I cut the EBIT margin from about 33% this year to 28.8% from 2027 onward, below 2025’s 31.6%. The share count falls 1.5% a year on buybacks, and the multiple stays at today’s 14.6x.
Even with a down year built in, my model lands at about $242 by the end of 2030. That’s a 29.7% total return, dividends included, from Tuesday’s $186.64 close, or about 6.4% a year. TIKR’s July model reached $258 for the same date, but from $216, which worked out to about 4% a year. The low case still comes in around $212, or 3% a year.
Conclusion
A quarter carried by equities trading deserves some skepticism, and the stock has already absorbed it. Wealth Management has grown in all but two of the last 12 quarters, and at 14.6x forward earnings, Morgan Stanley stock can earn about 6% a year even if trading revenue falls in 2027. That’s a solid return for a bank stock, without much margin for a deeper slowdown. The figure to check in the fourth-quarter report is Wealth Management revenue: another quarter near $9 billion keeps that floor in place.
Think the 2027 pullback is too harsh, or not harsh enough? Build your own Morgan Stanley model in 60 seconds, free, starting from consensus estimates, and see where your target lands. Learn more here.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
